Brexit Tactics

Buying or selling to anyone integrated in the UK supply chain leaves you exposed to the implications of Brexit

Sterling movement, and the free movement of goods and of staff will all be effected and have knock-on effects

In focus – Brexit: Should Irish businesses have a Brexit strategy? Business leaders and experts share their insight.

With the UK government’s triggering of Article 50, the formal process for Britain’s departure from the EU is at last under way. Neil McDonnell, chief executive of the Irish Small and Medium Enterprises Association (ISME) says: “At least with the exchange of letters, both Britain and the EU have set out their opening positions. But there’s no real negotiation yet.”

The association recently polled its members on how they expect to be affected by Brexit. Just 10% of ISME companies predicted an increase in profitability, 34% expected no change, and almost half anticipated a fall. A large majority (77%) expected staffing levels to remain the same.

McDonnell adds an important caveat to the findings. He says: “Services, financial and insurance make up 54% of the Irish economy, but 68% of our membership. Sectors such as construction and distribution are under-represented in ISME. Our feeling is that those sectors, and ones like agri-business, will be most severely affected.”

The domino effect

He believes Irish businesses are taking Brexit seriously, but may not yet have a full understanding of their vulnerabilities. “What people are not aware of, and the point we’re trying to get across to them, is that they must look up and down their supply chain,” he says.

“We tend to have a lot of small accountancy firms, solicitors, HR and support employment services in our membership. They may not think they’re affected because all their clients are Irish. But if you’re buying or selling to anyone who is integrated into the UK supply chain, you may not realise how much you’re exposed to Brexit.”

Pat Cambage, director of group network development at Volkswagen Group Ireland, emphasises the knock-on effects of Brexit throughout the whole business ecosystem. “Ireland is a small country, and everyone affects everyone else,” he says. “So if the UK were to stop importing Irish beef, we’d stop selling cars because the farmers would stop buying them.”

He identifies three aspects of Brexit as having the greatest immediate impact on the company. “First, sterling movements will affect the import of vehicles,” he says. “Free movement of goods is the next one: our spare parts come from warehouses in the UK. The third one is free movement of staff, because we have people from all corners of the world, and quite a few from the UK.”

Trade and tariffs after Brexit

As well as forming its own Brexit team to mitigate these risks, Volkswagen Group Ireland decided to become active in the British Irish Chamber of Commerce. “We joined them to work with other industries to help them survive this, and see how they could help our industry,” he says.

Bringing together different companies to present a unified industry voice has been a priority for Coillte, Ireland’s state-sponsored forestry business. Bill Stanley, its director of strategy and business development, says: “We founded a cross-industry group, the Timber Industry Brexit Forum, to ensure members are educated in the likely scenarios and potential impacts.”

The timber industry is particularly susceptible to these effects, being overwhelmingly reliant on trade with Britain. Stanley points out that 70% of the sector’s production is consumed in the UK. Production is expected to double over 10 years, accounting for a further €2bn in economic output and an extra 10,000 jobs. “The assumption is that all this material will be absorbed in the UK,” he says.

After the UK leaves the EU, tariffs are unlikely to be a problem – timber is zero-rated by the World Trade Organization (WTO), unlike agri-goods – but non-tariff barriers could be extremely disruptive. Stanley says: “An Irish sawmill can process a bespoke order for a UK customer, load it onto a ferry and have it in London or Manchester for the morning after.

“This gives Irish timber a huge competitive advantage, and there’s a fear that Brexit will impact on that. If the average impact of new logistical costs and non-tariff barriers is 10% across all Irish industry, it could be double that for timber.”

One of the ways Coillte is facing up to this is by helping the Brexit Forum formulate a code of practice for cross-border movement of timber. “We’d like to propose to the various civil servants and negotiators on all sides a working model that’s in the interest of us as suppliers and the UK as consumers. We have a strong view that as an industry we have to have a collective voice.”

‘Get up and go’ attitude

Founded in 2015, Dublin-based UrbanVolt delivers LED lighting to Irish businesses for no upfront cost, sharing the savings from their lower energy bills. It still plans to expand into the UK market, and Graham Deane, co-founder and chief operating officer, sees both hardship and opportunity in the current climate of uncertainty.

He says: “There are two things that concern a business: revenue and cost. Will Brexit impact your revenue? Absolutely, but nobody’s quite sure how; there’s a lot of stuff that individual businesses can’t control or influence. What we offer our customers is on the cost side – control of overheads in the form of their energy.”

Like Stanley, Deane believes that non-tariff barriers are potentially the most onerous for Irish businesses, and that the transport and logistics sector – one of UrbanVolt’s main customer demographics – could bear the brunt. He says: “In those businesses, having to stop at a customs post and wait for clearance will add time, and that means cost. Potentially the impact for the customer is increased product cost, which may make some offerings uncompetitive.

“But the fundamentals of business won’t change. Whether Britain is in the EU or not, people will still get up and go to work. The best-case scenario now is for some form of clarity to come sooner rather than later.”